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Farm Subsidies in Developed Nations Harmful to Poor Countries, says Study - 2003-08-27

An international food research body says protective trade policies and farm subsidies in developed nations are harmful to the economies of poor nations.

The study by the Washington-based International Food Policy Research Institute says trade protectionism and farm subsidies applied by developed countries cost developing nations nearly $24 billion a year in lost agricultural and agro-industrial income.

The report, released Tuesday in Washington, says trade policies in industrialized nations cause Latin America and Caribbean countries to lose about $8.3 billion in annual income from agriculture. Asia suffers annual loses of about $6.6 billion, while sub-Saharan Africa loses nearly $2 billion a year.

The report further says protective policies in industrialized nations have a harmful impact on world trade, resulting in the displacement of more than $40 billion in net annual agricultural exports from poor nations.

A report co-author is Eugenio Diaz-Bonilla, a senior research fellow at the International Food Policy Research Institute.

"When production is subsidized and protected in industrialized countries that means you are displacing production some place else and usually the weaker players are the ones getting displaced," he said. "An additional ton of sugar in the European Union, or an additional ton of cotton in the United States or a ton of rice in Japan may as well mean less sugar in Guatemala, less cotton in Benin or less rice in Thailand."

Mr. Diaz-Bonilla also noted that small-scale farmers in developing countries have a hard time competing against subsidized products that are dumped in their local markets. He said the elimination of trade-distorting policies in industrialized nations would triple developing nations' agricultural incomes.

The report further notes that trade and subsidy policies of the European Union cause more than half of the displaced exports. It says European Union policies have greater impact on African countries because of regional trade relationships and colonial ties, while U.S. and Canadian policies greatly affect the economies of Mexico and Colombia.

Mr. Diaz-Bonilla says the report also blames developing nations for not investing enough in agriculture, roads, rural infrastructure, and land reform.

"Of course, developing countries also need to do a lot of additional work on their part to invest in the agriculture sector, to make sure that they invest in human capital, to have good governance," said Eugenio Diaz-Bonilla.

The International Food Policy Research Institute used a computer model of the world economy to estimate immediate damage to poor nations by simulating the elimination of rich countries' current agricultural trade policies.

World Trade Organization ministers are to meet next month in Cancun, Mexico, where reforming world agricultural trade is likely to top the agenda.